Newspaper article St Louis Post-Dispatch (MO)

Dow Soars as Stocks Ride Bond Coattails

Newspaper article St Louis Post-Dispatch (MO)

Dow Soars as Stocks Ride Bond Coattails

Article excerpt

Stocks charged higher Tuesday, riding the biggest bond rally in more than three years, as government reports showed inflation at its slowest in more than a decade.

Investors took the news as a sign that the Federal Reserve may hold benchmark lending rates steady, allowing corporate profits to grow.

The Dow Jones industrial average climbed 174.78, or 2.3 percent, to 7895.92, its fourth-biggest point gain ever. In percentage terms, it was the largest since Sept. 2, when investors came back from vacation. Travelers Group Inc., a big bondholder, rose the most, climbing $3.87 1/2 to $70.18. The Standard & Poor's 500 Index surged 25.87, or 2.8 percent, to 945.64. The Nasdaq composite index surged 33.68, or 2.1 percent, to a record 1668.60, led by computer industry pace-setters Intel Corp. and Microsoft Corp. "Lower interest rates with modest inflation are just a great combination for the stock market," said Garrett Nagle, president of his own emanagement firm in Boston. "If you can only get 6 percent on the long bond, that's not very strong competition for a market that's up 10 percent (a year) on average." U.S. bonds had their biggest rally since May 1994 after government reports on consumer prices and industrial production. The yield on the 30 -year Treasury bond - the long bond - plunged 18 basis points to 6.40 percent, its lowest since July 31. Some 636 million shares changed hands on the New York Stock Exchange, making it the seventh-most active day ever. The interest-rate sensitive Dow Jones utility average set an almost four-year high, reflecting continued optimism for lower bond yields, Nagle said. Power companies provide a double-play on interest rates, because their dividends grow in value relative to bonds as yields drop, while lower rates let utilities more easily finance capital projects, boosting profits. The 15-company utilities average, whose members include Edison International Inc. and Columbia Gas Systems Inc., rose 2.63 to 242.92, its highest close since Oct. 20, 1993. It has jumped 16 percent since April 25, a 52-week low. Late in the day, Rochester Gas & Electric Corp. …

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